LT Update - Voila !

On Aug 23, i wrote that we would head into a major 9 month cycle bottom and we did. On Sep 15, i posted that we should end the climactic phase in about 1-2 days. In my Sep 17 post i said that Sentiment was ripe for a major bottom and the pattern,price and time was ripe. Now one could blame the bottom on the Fed/Treas intervention etc. Yes, but that's not technical analysis. Hasn't the Fed treasury been intervening constantly over the last few weeks. Why did the market choose to bottom on a particular day ? Well, if one is a technical analyst, it would have been hard to miss this bottom. 2 days prior to the bottom we had nasty breadth plurality, with decliners exceeding 3000+ on the NYSE. During Thursday morning trade, the advancers were running around 2000, while the market started to plunge. Decliners never went above 2000 during the selloff. Not to mention the capitulation volume over the last few days. Tell tale signs of an approaching bottom. Of course, the advance out of the bottom got exaggerated with the annoucement of the short selling ban. But point is, if you are TA guy, you would have been prepared for this assault. That's what i had been preparing for, with my posts over the last few days on this blog. Many are calling this as a ST bottom. But i disagree and i am going out on a limb and calling this a major IT bottom. A multi-month rally lasting 6-8 months should begin from here.


My LT projection for SPX was 1170+/- 20 points and we acheived that this week. The market progressed pretty much in the way the pattern was projected. An a-b-c-x-a-b-c.

Prior LT projection


Given that this was the largest, fastest 1-week rally since the bear market begun in Oct 2007, the post market action out of the bottom loudly says that the first leg of the bear market is likely over !.



Now to the fun part on the projections. Assuming wave A is over, Wave B typically retrace 50-78.1% of the wave A rally. Given the fast nature of the rally out of the bottom, and relative to where the price now is w.r.t to the weekly Oscillator, there's ways to go before the weekly charts get overbought. So it's unlikely that the 50% retrace will mark the end of the wave B rally. Timewise it took almost 12 months for the wave A rally. So the wave B rally should last at least for 6-8 months. Given the time requirement and the room on the weekly momentum charts, i would say the target for this Wave B rally should be at least the 61.8% retrace, which comes around 1407. That's my prelimnary projection P1. If we exceed and hold above that, we could tag the P2 target (1470), which is quite remote, but nevertheless possible.

The necessary divergence on the NYSE MCO is in place. The necessary momentum divergences on the weekly charts are in place. I dont' see a case for a retest. I only pray that the bears don't get caught in another gap-up over the weekend. A lot of psychological damage has been made on the bears in the last 2 days. The outrage over the govt intervention and disbeleif in the rally, will ensure that the bus will never get loaded on this upleg. Keep an open mind and trade well ! Good luck.